From civil servants to service providers: Privatisation, outsourcing and the workplace

In every corner of the globe, a neoliberal agenda has led governments to delve deeper into the heart of the public sector. Services previously viewed as ‘inherently governmental’ have been transferred into the hands of private providers. The structure of the service having changed, privatisation is often assessed through the lens of the citizen-consumerhas quality improved? Have costs been driven down?  

Now, one cannot say that the impact on service users as a result of privatisation is of no concern. Far from it.  However, it would also be too simplistic to suggest that performance is directly and solely related to the ownership of, say, trains, roads or schools. Complex managerial or organisational structures, moral hazards and perverse incentives, and conflicts of interests all play a part in both failure and success. 

The impact of privatisation on workers’ rights and the employment relationship has received less attention and as such forms the basis for this blog which will draw upon British and Israeli jurisprudence which highlights interesting similarities, as well as stark differences in the outsourcing approach 

Labour law and the Outsourcing of Public Services 

Employment relations and employment law are a major feature of arguments for and against outsourcing in the public sector.  

But the capacity of the courts to facilitate meaningful change is limited by a state of affairs whereby, as one commentator notes, “every time law manages to regulate an employment relationship, another atypical employment relationship comes immediately into being, frustrating the restraints envisaged by the regulations”. Moreover, in a number of instances, the good intentions of the courts have worsened the situation of workers with unfortunate results for the services they provide.  

Much of the case law concerning outsourcing and the employment relationship is based on the outsourcing of personnel rather an actual service. Two early cases from the UK and Israel reveal striking similarities not only in the judicial approach of Israeli and British tribunals, but even in terms of the facts of the case.  

In both cases (Hershkovitz and Bearman, respectively) a triangular relationship was established by the government to assist workers who would otherwise not manage to find suitable employment in the free market on their own. The workers demanded status as government employees, with all the rights that such a status entails 

In both instances, the workers requests were denied based on similar reasoningthat this form of triangular employment is not meant to disenfranchise workers, but rather to benefit them in a manner that would not have been possible under the traditional, market-based contract of employment. Therefore, there is “nothing in this structure that negates the foundational elements of labour law” (Hershkovitz, at [8]). 

In the Israeli case, as outsourcing became more prominent and less benignemployment tribunalmoved from submissiveness to government policy to scepticism as to the government’s intentions. Tribunals were no longer willing to view all triangular relationships as “authentic” and were increasingly ready to view them as “fictitious”. The result of such an assertion is that the claimant would be entitled to almost all the rights awarded to other Government employees. 

In doing so, the tribunals developed a series of tests, which revolve around one simple principlethe stronger the association of the employee to the end-user’s workplace, the stronger the tendency to see her as the employee of the end-user 

This rationale seems reasonable, and a matter of common sense. If the worker is subject to the control of the end-user, takes part in day-to-day activities of the organisation, is integrated in the end-user’s hierarchy, and is subject to its policy and disciplinary procedures, then the formal, contractual structure may be regarded as fictitious, or a ‘sham’.  

In contrast, increasing the distance – physical and managerial – between the end user and the worker will disconnect the legal responsibility of the end-user to the worker, since it reduces the likelihood that an employment relationship exists between the two. This approach was repeated in numerous cases, in which claimants were successful. The underlying rationale for this test in Israeli jurisprudence was described as follows: was outsourcing put in place to circumvent collective agreements and thus undermine worker rights?  

In contrast to the Israeli case, British courts and tribunals developed jurisprudence that could not be more distinct. In Smith v Carillion, the Court of Appeal stated that it is important to bear in mind that it is not against public policy for a contractor to obtain services in this way, even where the purpose is to avoid legal obligations which would otherwise arise were the workers directly employed (emphasis added).  

And, more extensively, the court in Tilson noted that, according to prevalent judicial policy, it is not 

legitimate for a tribunal to imply a contract because it objects to the practice of employers entering into arrangements of this kind in order to avoid incurring the obligations they owe to their employees. In many cases that is undoubtedly the reason why employers enter into agency arrangements.  

But does the above mean that the situation of agency workers in Israel is necessarily better than that in Britain? Hereit is important to look beyond legal doctrine, to its effect on employment reality. For the ‘distancing’ rationale was not perceived solely as a static tool to assess a given employment situation; rather, as David Weil notes, it has become an employers’ directive to plan their employment relationship in a manner that will knowingly distance themselves from the agency workers.  

Concretelyend-users, including government departments and agencies, now seek to avoid professional or personal contact with agency workers so as not to create the appearance of a worker’s association to the workplaceCases brought before the tribunals revealed that employers moved agency workers from a common work area to a different building, denied them the use of department computers and transportation to and from the workplace; and barred them from participating in staff meetings, eating in the canteen and using staff showers. 

One important instance of this phenomenon relates to the disastrous outsourcing of the probation services in the UK. In May 2013, the then Justice Minister Chris Grayling implemented the Transforming Rehabilitation programme, which split the 100-year old probation service by maintaining the supervision of high-risk offenders in the public sector, whereas low and medium-risk offenders were outsourced to private companies amounting to  70% of the casework – a £3.7bn undertaking. Five years later, Her Majesty’s Inspectorate of Probation found that “private probation companies are letting convicts commit more crime and allowing them to disappear”. It has recently been reported that the number or rapes, murders and other serious crimes by people on parole has risen by 50% since the reforms.  

The root of the problem has been documented thoroughly by Gill Kitron and Cecile Guilliaumewho found that following the split, workplace culture in the Probation Service was hit hard. Workers spoke of tension, resentment and division represented in separate cupboards and fridges and even separate stashes of teabags. Open lines of communication between staff disappearedWomen and BME workers in particular were harshly affected by the split. Demoralisation and exacerbation swiftly lead what was once a gold star service into a severe crisis.  

Institutional effects 

Outsourcing is often promoted for its role in improving public services. It is argued that government will develop expertise in strategic management and control, while the contractor will be distanced from the political realm. Against this background, it is ironic that there is growing evidence that outsourcing has led to lack of organisational control, to the decline of expertise and to more politicisation – only serving to worsen the problems that outsourcing was intended to address.  

Control: Loss of control is not particularly surprising given that outsourcing can result in a lack of basic knowledge of personnel. Workers in outsourced services also owe a duty of loyalty to their employer, which may be a forprofit entity. In Israel evidence suggests that in certain instances, outsourced social workers acted unethically due to direction that they should maximise profits, sometimes at the expense of client welfare. 

Expertise: In many cases, outsourcing tasks that require expertise can lead to a loss of knowledge critical to the task of maintaining and developing an effective service resulting in a deterioration of the service being provided There are several reasons for this dynamic. First, by performing the task, the private contractor may, through her workers, accumulate relevant knowledge that is critical for the task. In one telling example from 2009, the Israeli State Controller noted that the Ministry of Health has become completely dependent on a non-government organisation since the latter “has accumulated medical and paramedical personnel who have expanded its power as almost a monopoly provider of these services”.  Accordingly, over time, the public agency loses its ability to ‘steer’ the contractor and to supervise their actions, simply because the latter is far more aware of the needs of the tasksSecond, even where the private provider is found to be at fault, it holds essential knowledge for the execution of the service that the public service has lost.  This dynamic has led, on more than a few occasions, to the inability of the public sector to impose sanctions on the provider, who holds the key to the service. As the discussion following the collapse of Carillion, Capita and most recently Interserve, in Britain has revealedwe are witnessing a reversal of power dynamics: public power atrophies and government becomes more reliant on a few private providers.  

Politicisation: When done in a real fashion, outsourcing personnel and services can be reasonable forms of management that address the true needs of the corporation or the government agency. The outsourcing of personnel, or the use of ‘temp agencies’ may be used, as the name indicates, to meet temporary manpower needs.  Unfortunately, these legal forms of outsourcing have been used and abused by ministries, agencies and local government. The outsourcing structure enables thhiring of workers on sub-par terms and conditions, further stratifying a two-tier labour market, eroding the public sector and impoverishing public services. Workers’ rights are undermined, the professionalism and institutional memory within the service are endangered, and the role of unions is diminished.  

Resolving these issues is a formidable challenge indeed. 


Amir Paz Fuchs is Senior Lecturer in Law at the University of Sussex, UK.

Image Credit: Alex Kotliarskyi on Unsplash